Technology Stocks Look Tired

By: Chris Ciovacco | Mon, Sep 10, 2012
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While we can envision technology stocks making another push higher, we sold our position in XLK based on the four reasons below:

  1. According to a recent Bloomberg story, growth prospects for technology companies may be more limited than in the past:

    U.S. technology companies have pushed their dividends to the highest level on record, a signal to investors that profit growth in the industry is slowing. While bulls say bigger dividends are a sign of confidence after 11 straight quarters of rising earnings in the industry left companies with ample funds to compensate shareholders, bears say boosting payouts shows chief executive officers are running out of ways to use their cash.

  2. A negative divergence tells us upside momentum is waning. The last high in the ratio of tech-to-stocks (XLK:$SPX) came with negative divergences in both daily RSI and MACD. You can see the divergences by comparing the slope line A (price) to the indicators (B and C). Similar bullish divergences highlighted in July helped us participate in a recent rally in oil (USO) and oil stocks (OIH).
  3. XLK:$SPX (Technology SPDR/S&P 500) NYSE/INDX + BATS

  4. Tech stocks have come a long way off the early June lows.
  5. XLK (Technology Select Sector SPDR) NYSE + BATS

  6. Even if technology pushes higher, we believe there are better risk-reward opportunities. We remain bullish, but materials (XLB), commodities (DBC), and precious metals (GLD) may be better positioned for what appears to be never-ending central bank intervention.

 


 

Chris Ciovacco

Author: Chris Ciovacco

Chris Ciovacco
Ciovacco Capital Management

Chris Ciovacco

Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE.

Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. CCM helps individual investors and businesses, large & small; achieve improved investment results via research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions.

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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
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